Gold swaps by BIS rose by 56 tonnes in February

The recent monthly statements of account published by the Bank for International Settlements indicate that the bank is still actively trading gold swaps, which the bank uses to gain access to gold held by commercial banks.

There is not enough information in the monthly reports to calculate the exact amount of swaps, but based on the information in the BIS' just-published statement of account for February 2019 --

-- the bank's gold swaps are estimated to be 303 tonnes compared to 247 tonnes at January 31, 2019, an increase of 56 tonnes. This compares to an estimated holding of 275 tonnes at December 31, 2018, and estimates of 308 tonnes in November, 372 tonnes in October, 238 tonnes in September and 370 tonnes in August 2018.

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The former executive wrote: "Effectively this process created a supply of 'paper gold' -- sometimes but not always marked to market -- that had a depressing effect on the gold price."

It is interesting that there were swaps that did not mark to market. This appears to have happened at least once in more recent times. At March 31, 2017, the BIS annual report confirmed 438 tonnes of gold swaps, valued at 14,086.9 million in the Special Drawing Rights of the International Monetary Fund. Converting the SDRs into U.S. dollars, this is equivalent to a gold price per troy ounce of approximately $1,355. But the published market price of gold as of that date was approximately $1,245, so the swaps did not mark to market.

Indeed, a perusal of the gold price in the 12 months to March 31, 2017, indicates that the effective price of the gold swaps is equal to the highest market gold price during that 12 months, reached in the summer of 2016.

On the face of it this seems an odd coincidence. But if the gold swaps were undertaken with the intent of trying to suppress the price of gold, then perhaps this coincidence is not so strange. Perhaps the BIS' counterparty to the swap was willing to undertake it if it was not only entitled to the return of its gold swapped with the BIS but also protected from a fall in the price of gold for the duration of the swaps.

In itself this unusual transaction does not prove gold price suppression but it would be consistent with price suppression as the reason for the swap.

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Robert Lambourne is a retired business executive in the United Kingdom who consults with GATA about the involvement of the Bank for International Settlements in the gold market.
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